Israel Radio said the step was taken in response to the murder of the teenagers by Hamas militants in the area.

The notice published by the military gave no reason for the decision.

Construction of a major settlement at the location, known as Gevaot, has been mooted by Israel since 2000. Last year, the government invited bids for the building of 1,000 housing units at the site.

Palestinians with a claim to the land have been told they have 45 days to appeal the decision. A local Palestinian mayor said Palestinians owned the tracts and harvested olive trees on them.

Peace Now, which opposes Israeli settlement activities in the West Bank - territory Palestinians seek for a state - said the appropriation was meant to turn a site where 10 families now live adjacent to a Jewish seminary into a permanent settlement.

The organisation's general director Yariv Oppenheimer says the move will severely harm the peace process.

"The decision to expand settlements and to declare lands as a state land is a very negative one and will harm the efforts to resume negotiation and to promote the peace process," he said.

The US State Department said the announcement was "counterproductive" to peace efforts and urged the Israeli government to reverse the decision.

"This announcement, like every other settlement announcement Israel makes, planning step they approve and construction tender they issue is counterproductive to Israel's stated goal of a negotiated two-state solution with the Palestinians," a department official said.

Israel has come under intense international criticism over its settlement activities, which most countries regard as illegal under international law and a major obstacle to the creation of a viable Palestinian state in any future peace deal.

Some 500,000 Israelis live among 2.4 million Palestinians in the West Bank and East Jerusalem, territory that the Jewish state captured in the 1967 Middle East war.